Amazon’s China Woes Bolster the Bull Case on Alibaba Stock
One good inning doesn’t make an entire baseball game, but baseball games are won by playing one good inning at a time. To that end, Alibaba Group Holding (NYSE:BABA) just completed a pretty good inning in its never-ending battle with e-commerce giant Amazon.com (NASDAQ:AMZN), boosting the outlook of BABA stock in the process.
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Although BABA stock hasn’t performed like a winner over the course of the past few days — thanks to concerns that the trade war with China may never end — the dip of Alibaba stock may ultimately prove to be a fantastic buying opportunity.
That’s because BABA has finally forced Amazon out of China, leaving behind JD.Com (NASDAQ:JD) as its only serious rival.
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Amazon Bows Out
AMZN was never a serious contender in China.
Though Amazon.com launched its e-commerce business in China in 2004 via its acquisition of Joyo and rebranded that venture as Amazon China in 2011, its best recorded market share was only a bit over 15%. Now, the Wall Street Journal reports, Amazon only controls 6% of China’s e-commerce market, though research firms have put the figure closer to 1%.
China is probably the biggest reason that Amazon’s international arm is still bleeding money, and in April Amazon announced it would be shutting down its China operations. AMZN will still sell goods to China’s consumers, but, to buy products from Amazon, they must shop on platforms intended for other countries and regions.
The long-term owners of BABA stock who’ve paid close attention to the rivalry aren’t apt to be surprised. While it looked early on as if Amazon had a shot at turning China into a key profit center, the company’s business never synced well with the way China’s consumers shop or with the way its domestic suppliers operate.
Shoppers are able to order items directly from vendors through Alibaba’s Tmall, often enjoying free shipping and one-day delivery of goods at prices lower than Amazon offered.
Culturally, Chinese consumers may have also tacitly been aiming to support the local entity rather than its American competitor.
BABA Is Opening More Doors
Alibaba is already positioned to capitalize on the vacuum that Amazon.com is about to create, boosting the outlook BABA stock in the process.
In November of last year, BABA said it would look to import $200 billion worth of foreign goods and sell them to China’s shoppers over the next five years. CEO Daniel Zhang commented “We hope through globalization to use China’s consumer market to bring the whole world’s goods to China… especially some small and medium sized enterprises, they need to open their market in China.”
It will probably be easier for China’s consumers to buy products from a local middleman than an overseas one.
In the meantime, Alibaba is positioning itself as a reliable partner that’s capable of growth, while Amazon is being forced to retreat. For the first time ever, BABA’s AliExpress will allow non-Chinese manufacturers to use its sales platform to sell goods to the more than 150 countries in which AliExpress operates.
AliExpress is only being opened up to small and medium-sized businesses in Russia, Turkey, Italy and Spain. But, it’s a start, taking shape at a time when small and medium-sized businesses are seemingly being discouraged from using Amazon’s online-shopping platform. This alternative to Amazon.com has to have gotten the attention of smaller businesses whose only current option is Amazon.
The Bottom Line on BABA Stock
Amazon’s abandonment of its domestic China business is not necessarily a game-changer for BABA stock, and it will take awhile for Amazon’s absence to meaningfully boost Alibaba and BABA stock.
Nevertheless, the competitive shift absolutely bolsters the already-bullish outlook of BABA stock.
More than anything, however, investors may be underestimating the depth of Amazon’s trouble in China, which sets the stage for an expansion by BABA.
AMZN’s ability to use its websites based in other countries to sell products to Chinese consumers will probably be limited. iResearch analyst Choi Chun explains that, “cross-border e-commerce in China is not as consolidated as regular domestic e-commerce, (since) online shoppers go to different platforms for different overseas merchandises.” He concluded that, “I don’t rule out the possibility that Amazon’s cross-border business will follow the same path of Amazon’s China domestic e-commerce business.”
In this case, anything that’s bad for Amazon.com has to be good for BABA, BABA stock, and the owners of Alibaba stock.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can learn more about James at his site, jamesbrumley.com, or follow him on Twitter, at @jbrumley.
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